Public Hospital Plans Change to Nonprofit Status

NPQ has observed the trend of health care organizations such as long-term care facilities and smaller hospitals considering governance and incorporation changes as they reposition themselves in a rapidly changing and uncertain marketplace. Berger Health System in the central Ohio town of Circleville is considering a change from a city-county partnership governance structure to becoming a nonprofit hospital. City voters will need to approve the change in November, an event made more uncertain because voters rejected a similar move almost a decade ago.

Berger isn’t losing money, but with net revenues of just over $1 million on revenues of less than $100 million, their operating margin is too small for comfort. Generally, hospitals are seeing shrinking profitability, increased merger and acquisition activity, and pressure to commit to capital-intensive upgrades to physical facilities and information technology, especially electronic health records. If the hospital were to become unprofitable, city and county taxpayers would be responsible for covering any losses.

Berger is also feeling pressure from three nonprofit competitors in the area. Mount Carmel Health, a subsidiary of Michigan-based nonprofit Trinity Health, is building a new hospital in nearby Grove City, and both the Adena system in Chillicothe and Fairfield Medical Center in Fairfield County have made inroads closer to Berger’s Pickaway County, according to a county commissioner.

Berger has engaged in a strategic partnership with OhioHealth, a nonprofit collaboration of hospitals and health providers, which has allowed Berger to diversify its service offerings and achieve some operational cost efficiencies.

It is hoped that the switch to nonprofit status will allow Berger to be more independent and able to negotiate more and better strategic alliances than it can at present. Being an independent nonprofit, it is believed, would allow the hospital to become more market-responsive in setting employee compensation. The good news is that the hospital’s utilization rates are strong, with 55 percent of county residents continuing to get their care form Berger despite increased competition and additional options in their area.

Pressure stimulates activity, and Berger Health System’s completed operational changes and proposed governance changes are examples of how the healthcare sector is changing. Expect to see more hospitals and healthcare organizations consider moves like this as the marketplace remains unsettled.—Michael Wyland

Michael L. Wyland currently serves as an editorial advisory board member and consulting editor to The Nonprofit Quarterly, with more than 400 articles published since 2012. A partner in the consulting firm of Sumption & Wyland, he has more than thirty years of experience in corporate and government public policy, management, and administration.